If You Think Disaster Is Good For the Economy, You Might Be a Keynesian

Paul Krugman is famous for saying that if space aliens were to attack the planet, it would be great for the economy. He says that any temporary deficit spending, no matter how productive, is good for the economy and would “bring us out,” of economic recession.

I hate treating Krugman like a sane person, but on the surface, it seems tenable. More spending, for an ostensibly good cause increases productivity and may seem like a good thing for the economy. If that were so, then disasters like Haiti’s earthquake or hurricane Katrina or even the Boston Marathon bombing would be good for the economy.

But this Nobel Prize winner is stuck in grade-school economics here. Krugman consistently falls for the broken window fallacy, which states that if a man comes along and breaks a baker’s window, it’s good for the economy because that employs a glazier to repair the window. Voila: more employment. But it’s a fallacy because, while we see what has been created (glazier employment), we don’t see what could have been created: an extra bread oven, donations to the poor, a new wardrobe for the baker’s staff. Instead of having all those things AND a window, because of the vandal (the disaster), the baker can only have a window.

Not realizing that there are costs in disaster is so ridiculous, it almost doesn’t deserve to be acknowledged, but people still listen to Keynesians, so, their idiocy must be repudiated constantly.